Dramatic Health Care Reform Is Necessary for the Overall Social Welfare System

I noted previously that I think single-payer healthcare would be a clever way to build out a nice welfare state. My argument was that our current system is so bad that it has driven health care costs to incredibly high levels. Transitioning to a single-payer system would thus require a large upfront tax hike. But then, as cost reductions gradually kick in, government expenditures on the program would gradually recede. This would gradually free up the revenue from the upfront tax hike for other important welfare benefits that we are currently missing, such as child care benefits.

In addition to this Trojan Horse point, it’s also important to remember that dramatic health care reform is essential to the successful operation of unemployment, leave, and disability benefits. Specifically, those benefits will not operate very smoothly for as long as employer-provided health insurance is the norm.

When you become unemployed, disabled, or take leave (e.g. to care for a newborn child), you are no longer working, but you still need access to health care. If your health care previously came from your employer, this reality creates an incredible headache. In these situations, you either have to 1) require the employer to shoulder the health care costs even though the individual no longer works for them, 2) shift the cost of health care on to the individual whose loss of income makes it difficult for them to shoulder, or 3) put the individual onto a different (public or subsidized) health care plan even though they may only be out of work for a few weeks.

Indeed, you see all three of these approaches in play right now in the US system.

Right now, when you take leave under the FMLA (unpaid 12 weeks of leave for workers in sufficiently large firms), your employer has to continue to pay for your health insurance on the same basis as when you were working. This makes unit labor costs unpredictable. Because the FMLA's reach is so narrow at this point and only constrained to large firms, it doesn’t seem to be too big of a problem. But if we were to try more ambitious paid leave that covered long periods of time and firms of all sizes, mandating continuing health care coverage could become a serious logistical nightmare. In Sweden, a new parent can take as much as 390 days of paid leave. Would we have employers pick up more than a year of family health insurance for each employee that has a child? How would smaller firms or firms with lower-compensated employees manage that? How well would public paid leave benefits fix the problems associated with mandating employers provide paid leave (discrimination, unpredictable unit labor costs, etc.) if the employers are still mandated to provide health insurance during leave?

Right now, when you become unemployed, the main way that you retain health insurance coverage is through COBRA. COBRA requires employers to extend temporary continuing coverage to separated employees. However, COBRA does not require your prior employer to continue any of the cost-sharing it provided while you were employed. So an employee who used to pay 20% of their health insurance costs while they were employed often ends up paying 102% of those costs when they seek to retain their health insurance after they become unemployed (the 2% extra goes to the employer for administrative costs). An employee with a $1000/month family plan and a typical 80-20 cost-sharing split sees their health insurance costs shoot from $200/month to $1020/month right at the same time as they lose their job and their income. Needless to say, that’s a serious problem!

Under Obamacare, you can turn down your employer’s COBRA offer and instead venture on to the individual marketplace. Of course, if you do that, you may end up enrolling in a health insurance plan that you then discard a few weeks later when you find a job in a new firm. You also have no idea how to project your income at that point (since you don’t know how long it will take for you to become employed again), meaning that it will be difficult for you to figure what, if any, subsidy you are eligible for on the individual marketplace. Even if getting an individual marketplace plan goes smoothly, there is still the matter of having to pay for it despite having just lost all your income.

Right now, when you become disabled, you can go on to SSDI and get benefits, though getting on SSDI can take quite a while. As far as I know, when you first become disabled and get separated from your job, it’s not unlike unemployment and all the problems associated with that. After you get on SSDI, if you can make it two years, you can get on to Medicare. This is obviously problematic insofar as you may need health insurance while you are disabled for the two years before you become eligible for Medicare. Certainly some people in that situation could get on Medicaid, but asset tests make that harder than you imagine. You could, I suppose, provide Medicare immediately when someone get on SSDI, thus only subjecting the disabled to the train wreck of securing continuing coverage immediately after an employment separation. But for those whose disability might only last for so long, they could see themselves shift from the employer’s plan to COBRA/individual marketplace to Medicare and then to another employer’s plan within a relatively brief period of time. It’s an incredible mess.

In some circles, it’s become common to dismiss efforts to dramatically overhaul the health care system as basically frivolous. But the reality is that our current health care system is not only bad at being a health care system but also bad at facilitating other important social benefits. If you care about getting a good system of benefits going for the unemployed, disabled, and those on leave, then you also have to care about making serious changes to the current health care system.